Report outlines ‘vast variations’ in hospital costs

Jack M. Bert, MD

I recently presented a bit of this information to the Medicare Director of Innovation in Washington, DC. I would recommend that everyone read the article by Steven Brill entitled “Why medical bills are killing us” published in Time magazine in March. It took Brill more than 2 years to gather information and write the article and confirms the absurdity of hospital pricing.

The response by hospitals when confronted with 800% to 1,000% markups for material costs is “it is very complex.” The truth is there is no logic to the pricing that is occurring and has absolutely no relationship to the expenses or costs for a procedure. For example, it costs $77 for a pack of gauze that can be purchased at a drugstore for $4.95. A single acetaminophen tablet is charged out at $1.50 but 100 tablets can be purchased online for $1.49.

It begs the question as to why hospitals are so terribly inefficient and costly. The answer is obvious – top heavy administration costs, the absurdity of “non-profit status” many hospitals maintain and the subsequent channeling of profits to pay for high administrator’s salaries, and finally the egregious charges that are utilized when patients do not have insurance as illustrated in Brill’s article. It is clear that if bundled payments go to hospitals and bypass physicians, these inefficiencies will become more evident. Orthopedic surgeons will experience the downstream effect of lower reimbursement and the inability to utilize their low-cost ambulatory surgery centers and MRIs, which have saved Medicare millions of dollars per year due to the 42% discount on reimbursement compared to the hospital outpatient department rates that are being charged by hospitals.

Reference:

http://www.time.com/time/magazine/article/0,9171,2136864,00.html

Neil Zakai, MD, MSC

My first reaction was that I was surprised at the magnitude of some of these disparities. But when I looked more closely at the numbers, I noticed that the numbers were painted in very broad strokes. We do not see data on the length of hospital stays or the severity of illness of some of these patients. For example, if you have a pulmonary embolism treated in a small community hospital may be very different from one treated at a large tertiary care center. The severity may be completely different.

Looking through this, I cannot determine how or if the acuity of the hospital stay was accounted for.  If someone’s been in the hospital for a month because they have had to be intubated for the pulmonary embolism, it is going to be more costly to care for than a marginally symptomatic pulmonary embolism after a knee replacement surgery, for instance,  at a community hospital.

Certainly there are differences between what hospitals charge, but the differences are likely less than what is immediately apparent here for these reasons.

For example, teaching hospitals are more expensive because they have learners which can reduce efficiency . Also, there will be differences between for profit and not for profit centers in term of patient mix. So comparing one hospital’s practice with another may be difficult.

A more appropriate comparison may be at the state or regional level. When you see differences at the local level, you have to understand the hospital’s patient population to determine how sick the patients are, and how that impacts the differences in cost.